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Inequality and Trust

This paper reviews the literature on economic inequality and trust. Cross-country studies, within-country studies, and experiments all suggest that economic inequality exerts a negative influence on trust. Four mechanisms are proposed to explain the negative relationship: social ties (or networks), inference on social relationships (to see inequality as a signal of untrustworthy behavior), conflicts over resources, and opportunity cost of time. Social ties receive the strongest empirical support, but there is also some evidence in favor of inference on social relationships. Conflicts over resources and opportunity cost of time are contradicted by important pieces of evidence.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 715.

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Length: 21 pages
Date of creation: 21 Aug 2007
Date of revision:
Publication status: Published in Handbook of Social Capital, Svendsen, Gert, Svendsen, Gunnar (eds.), 2009, chapter 19, Edward Elgar.
Handle: RePEc:hhs:iuiwop:0715
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
Web page: http://www.ifn.se/
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  1. Dean Karlan & Markus Mobius & Tanya Rosenblat & Adam Szeidl, 2009. "Trust and Social Collateral," The Quarterly Journal of Economics, MIT Press, vol. 124(3), pages 1307-1361, August.
  2. Alberto Alesina & Eliana La Ferrara, 1999. "Participation in Heterogeneous Communities," NBER Working Papers 7155, National Bureau of Economic Research, Inc.
  3. Leigh, Andrew, 2006. "Does equality lead to fraternity?," Economics Letters, Elsevier, vol. 93(1), pages 121-125, October.
  4. Alesina, Alberto & La Ferrara, Eliana, 2002. "Who trusts others?," Journal of Public Economics, Elsevier, vol. 85(2), pages 207-234, August.
  5. La Ferrara, Eliana & Alesina, Alberto, 2000. "Participation in Heterogeneous Communities," Scholarly Articles 4551796, Harvard University Department of Economics.
  6. Morgan Kelly, 2000. "Inequality And Crime," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 530-539, November.
  7. Berggren, Niclas & Elinder, Mikael & Jordahl, Henrik, 2007. "Trust and Growth: A Shaky Relationship," Working Paper Series 705, Research Institute of Industrial Economics.
  8. Stephen Leider & Markus M. Möbius & Tanya Rosenblat & Quoc-Anh Do, 2007. "Directed Altruism and Enforced Reciprocity in Social Networks: How Much is A Friend Worth?," NBER Working Papers 13135, National Bureau of Economic Research, Inc.
  9. Andrew Leigh, 2006. "Trust, Inequality, and Ethnic Heterogeneity," CEPR Discussion Papers 511, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  10. Glaeser, Edward Ludwig & Laibson, David I. & Scheinkman, Jose A. & Soutter, Christine L., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
  11. repec:ucn:oapubs:10197/523 is not listed on IDEAS
  12. Atkinson, A.B. & Brandolini, A., 2000. "Promise and Pitfalls in the Use of 'Secondary' Data -Sets: Income Inequality in OECD Countries," Papers 379, Banca Italia - Servizio di Studi.
  13. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
  14. Berggren, Niclas & Jordahl, Henrik, 2005. "Free to Trust? Economic Freedom and Social Capital," Ratio Working Papers 64, The Ratio Institute.
  15. Hilde Coffé & Benny Geys, 2006. "Community Heterogeneity: A Burden for the Creation of Social Capital?," Social Science Quarterly, Southwestern Social Science Association, vol. 87(5), pages 1053-1072.
  16. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
  17. Gustavsson, Magnus & Jordahl, Henrik, 2006. "Inequality and Trust in Sweden: Some Inequalities are More Harmful than Others," Ratio Working Papers 106, The Ratio Institute.
  18. Justina A.V. Fischer & Benno Torgler, 2006. "The Effect of Relative Income Position on Social Capital," Economics Bulletin, AccessEcon, vol. 26(4), pages 1-20.
  19. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
  20. Christian Bjørnskov, 2007. "Determinants of generalized trust: A cross-country comparison," Public Choice, Springer, vol. 130(1), pages 1-21, January.
  21. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  22. Johansson-Stenman, Olof, 2008. "Who are the trustworthy, we think?," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 456-465, December.
  23. Lisa Anderson & Jennifer Mellor & Jeffrey Milyo, 2006. "Induced heterogeneity in trust experiments," Experimental Economics, Springer, vol. 9(3), pages 223-235, September.
  24. repec:ebl:ecbull:v:26:y:2006:i:4:p:1-20 is not listed on IDEAS
  25. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
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